9th September 2013.
Officer –In Charge,
Securities Exchange Commission,
Level 28 and 29,East Tower,
World Trade Centre,
Seeking your Leadership Action in Ensuring that Listed Companies Prepare Financial Statements in line with applicable Accounting Standards Re; Valuation of Property, Plant & Equipment and Other Assets
I refer you to the relevant earlier correspondence from me in the above connection, especially those addressed to the President of the Institute of Chartered Accountants, dealing with the Asset Valuations reflected in Balance Sheets of commercial entities, which are impaired by the inclusion of "Corruption and Waste" linked payments.
I am now pleased to report that following a further letter I sent to the President, Institute of Chartered Accountants, in July 2013, on the same subject setting out the correct professional interpretation of the issues in respect of which I originally sought clarification, I have now received the positive response, which transparently and with accuracy accepts my supposition as articulated in the previous correspondence. A full set of copies of the correspondence is attached for your convenience.
In the current clarification the Institute of Chartered Accountants accepts the following, which formed the basis of the position articulated by me in my correspondence;
1. All costs not covered by the paragraphs 16 and 17 of the Sri Lanka Accounting Standards- LKAS 16, whether linked to corrupt practice or otherwise, cannot be capitalized as a part of an item of property, plant and equipment and need to be written off in the Statement of Comprehensive Income, and
2. If an entity identifies any expense subsequently, that cannot be concluded as elements of cost of such an item of property plant and equipment in terms of the Standards referred to in 1 above, including payments relating to corrupt practices, such an expense need to be charged to the Statement of Comprehensive Income, and
3. In line with the Accounting Standards dealing with impairment of property plant and equipment, where the estimated recoverable amount of an asset is less than its carrying amount, the carrying value of the asset should be reduced to its recoverable amount, and
4. Directors, Officers and Accountants are bound by applicable law to prepare financial statements that conform to Accounting Standards, and
5. Auditors are similarly required by law and applicable Auditing Standards to ensure that there are no material misstatement and express an opinion on the financial statements giving a true and fair view
You may therefore be satisfied that the position as adduced by me that;
1. Balance sheet valuations of Property, Plant & Equipment and Other Assets should not include any items of costs incurred by an entity as payments linked to corruption and waste, and
2. Where balance sheet valuations of Property, Plant & Equipment and Other Assets include any such payments linked to corruption and waste such amounts must be written off to the to the Statement of Comprehensive Income, and
3. where the estimated recoverable amount of an asset is less than its carrying amount, the carrying value of the asset should be reduced to its recoverable amount, and
4. Directors, Officers, Accountants and Auditors of commercial entities are legally duty bound to ensure compliance with 1 and 2 above
have now been formally affirmed by a written clarification issued by the Institute of Chartered Accountants.
I will therefore be most grateful, if you will kindly take leadership action to issue written directives to all listed companies and their directors, officers and auditors, to ensure that all financial statements of listed companies strictly conform to the Accounting Standards as clarified above in relation to the valuation of Property, Plant & Equipment and Other Assets, and failing which to qualify such financial statements consequent to the failure to abide by the applicable accounting standards.
cc. Director General, Colombo Stock Exchange, #04-01, West Block, World Trade Center, Echelon Square, Colombo 01.
Someone forwarded this email to me. SP
Last edited by sriranga on Wed Sep 11, 2013 11:14 am; edited 2 times in total (Reason for editing : Title Heading too long)